Germany and Patents: All that Glitters isn’t Gold

On April 2nd, Microsoft decided to move its European distribution center from Germany to the Netherlands. The decision was not the product of distribution logistics. Rather, Microsoft sought to avoid German patent law in advance of a pending April 17th opinion by the German patent courts. German patent law has made the country something of a patent shelter in Europe. Germany provides expedient decisions and easy-to-obtain injunctions that are hard to challenge for defendants. All that sounds fantastic until a corporation or small business is the target of those laws rather than the one benefitting. Furthermore, in these tough economic times, Germany’s patent regime has broad consequences for economic and technological development.

Currently, two-thirds of all patent claims in Europe are filed in Germany. This fact is not surprising given all the seemingly positive aspects of German patent law and procedure. German patent judges are all also engineers who have specifically studied patent law. Cases are turned around in six to eight months with cases taking fifteen months in Dusseldorf. Appeals are completed within 1 to 1.5 years. However the most desirable aspect of the German patent system is the ease with which injunctions are granted. When a litigant succeeds in an action for infringement, an injunction is immediately available. This stands in contrast to America where an injunction will only be granted if a patent is deemed exploited and monetary damages remain the primary remedy. What makes these easily obtained German injunctions especially appealing is that the injunctions run while a case is up on appeal.

The German patent regime is also a fairly harsh place to mount a defense. Claims challenging the validity of a patent are brought in a separate court from those deciding infringement claims. These courts can take up to twenty months to reach a decision. An appeal can add another couple of years to that process. According to German lawyer Sabine Age, “[i]t is only in the cases where the patent is grossly invalid that German courts dismiss claims for preliminary injunctions . . . .” The German “Orange-Book” case provides an extra defense on patents that are essential to an industry standard and thus defined in terms of that standard. Under “Orange-Book,” the attack against the injunction doesn’t rely upon equity standards familiar in America like fairness and reasonableness but rather that frivolous patents related to industry standard essential patents constitute antitrust violations. Accordingly, one seeking to get an injunction dismissed must prove both that their license was made under fair, reasonable and non-discriminatory terms and that reasonable royalties were paid to the licensor. However, neither German civil law nor German courts have defined what “reasonable rates” are. Therefore, the Orange-Book defense is largely useless. Licensors can claim that royalties paid to them were not reasonable or they can simply set the price of their “reasonable” royalties to a rather high amount. With the threat of easily obtained injunctions looming, this creates an easy market for licensors to demand high royalties or pounce with injunctions.

While the German patent regime might seem desirable for patent-holders, the sting of the system is certainly harsh. After all, just ask Microsoft. However, German-nationals are expressing concern too. Johannes Sommer, Managing Director of Bundesverband Informations- und Kommunikationstechnologie, an association of small and mid-sized business based in Hamburg, said of Germany, “[w]e are a very patent-holder friendly nation in Germany, to a fault.” Sommer’s comments reflect a concern that an overzealous patent regime will stifle technological innovation, particularly for small and mid-size businesses. There is certainly weight to that argument. The German system allows for expediently and easily obtained injunctions. Judges will only dismiss injunctions related to grossly invalid patents. The Orange-Book defense is largely unworkable; essential patent licensees accused of infringements have to prove fairly cryptic elements and are attacking their licensors as anti-trust violators rather than attacking the substance of the injunction itself. This is all fairly troubling considering the current global economic climate. Germany might be the economic titan of the European Union, but is a patent regime that hurts small and mid-size business wise? Could this be limiting growth across their economy? Further, it is concerning to see extremely large corporations like Microsoft smoked out of the nation by a harsh patent regime. If the patent regime both stifles domestic development and foreign investment, then it truly may be overly friendly to patent-holders to a fault.